Credit Card Surcharges at POS
Independent merchants are faced with many challenges in controlling costs and maximizing ROI for their businesses. One of these challenges comes in the form of fees paid to credit card companies. This area can be quite confusing for some merchants due to the layers of complexity involved in the payment processing industry. As a POS solution provider, I have gained some insight on how the industry works and did my best to simplify the structure of those layers in a previous blog post located at this link – https://blog.posprophetsystems.com/blog/bid/110007/Paper-or-Plastic-Payment-Processing-Considerations-from-an-Objective-Source.
The latest news that has merchants asking lots of questions is the result of a lawsuit between a collection of merchants and the credit card industry giants. In this case, David conquered Goliath. The merchants won the right to assess surcharges (up to 4%) on certain electronic payments to offset some of the costs associated with doing business with the credit card companies. As of January 27th, 2013, merchants in most states are now legally permitted to apply these surcharges.
This is a huge win for independent merchants on the surface, right? Maybe… However, it is important to take a look under the hood before firing up this engine. Like most issues that revolve around the payment processing industry, there is still a great deal of items to consider before jumping on the surcharge bandwagon.
- First and foremost, many of the details are still not clearly defined. Even industry giants like major payment processing platforms and gateways have not settled on the best way to support merchants that wish to exercise their new right to apply surcharges on payment methods. Most POS providers are waiting on solutions from their payment processing partners before writing code to support robust methods of supporting this new functionality. Workarounds will need to be implemented prior to solid solutions that are user-friendly and bullet-proof.
- With #1 under consideration, it is my understanding that at least a handful of states still find it illegal for merchants to charge any type of additional fees to consumers who pay with plastic. I believe that California is one of them. I am almost certain there are others.
- It is also my understanding that no fees can be charged by the merchant on PIN debit transactions. PIN debit has become even more confusing since the Federal government has dipped their fingers into that cookie jar in the past year.
- Also, merchants must be aware that American Express and Discover issue completely separate and unique agreements than Visa and MasterCard. I am fairly certain that the agreement between AMEX and its merchants clearly states that no additional fees can be assessed by the merchant when a consumer pays with an American Express card. Discover’s agreement may contain something similar.
- Last but not least, merchants must consider the impact on the loyal customer. In the current economic environment, consumers will not take the additional fees lightly should the merchant elect to apply the surcharges. I would bet that the big box stores will hold off on implementing the surcharges until all the dust settles. They may elect to never implement them. So, merchants who compete with the Wal-Mart’s of the world may find themselves losing customers to big box retail over the issue of credit card surcharges.
The purpose of this blog post is to provide issues for merchants to consider prior to jumping into a pool that is not yet completely full of water. At this point, the industry has not completely embraced this new legislation. So, it is important to take caution and do your homework prior to implementing any surcharges. This is all over the news – even at local levels. So, my intent is for merchants to be well-equipped to discuss this issue with customers when questions arise.
Lastly, in respect to issue #5 above, one of the thought leaders on our team, Ian Versaw, proposed an idea to reverse the logic on this issue. The crux of Ian’s idea is to build the surcharges into retail pricing and offer discounts to consumers who pay cash. This turns a negative into a positive if implemented carefully and thoughtfully. We will continue to develop new ideas on this topic to assist merchants in protecting the bottom line while maintaining the loyal customer base.
For detailed information including the states that are not allowing or limiting surcharges, click on this link https://usa.visa.com/personal/using_visa/checkout_fees/index.html to learn more.